Cornelius Vanderbilt

By T. J. Stiles

Overview

On the north side of East 42nd Street, at the Park Avenue intersection, stands one of New York’s most admired buildings: Grand Central Terminal. Once the capitol of the New York Central Railroad empire, it remains the city’s glittering gate for tens of thousands of travelers each day. Over the entrance looms a larger-than-life bronze statue of the man who made it possible, Cornelius Vanderbilt.

The memorial is fitting, even though the Commodore (as Vanderbilt was unofficially but universally titled) never knew the building his image now guards. He amassed the New York Central Railroad system between New York and Chicago in the 1860s and ’70s, and constructed Grand Central Depot, the original incarnation of the modern Terminal. It’s appropriate, too, that his statue looks toward Wall Street, which he dominated during much of its formative period. Over the course of a 66-year career, he helped to drive the transportation revolution, magnified the California gold rush, pioneered the modern business corporation, and contributed to the birth of big business in America. One of the wealthiest men in history (worth an estimated $100 million at his death in 1877), he was highly controversial, sparking a public debate over opportunity, equality, and the role of government that continues to this day.

His career can be divided into his many years as a manager and entrepreneur of steamboat lines in the Northeast; his decade as a mogul of ocean-going steamships; and his final years as a railroad tycoon.

Steamboats

Vanderbilt was born on Staten Island, New York, on May 27, 1794. He died in Manhattan on January 4, 1877, just a few miles to the north but a world away from the circumstances of his birth.

Vanderbilt’s parents were of humble Dutch and English background, but they took part in the regional marketplace centered on the city of New York, just across the harbor on the southern end of Manhattan Island. His father used his sailboat as a ferry and to salvage cargo from shipwrecks. His mother loaned money, and even foreclosed a mortgage she had extended to her own daughter, after her daughter was widowed. Starting in 1810, at the age of 16, Vanderbilt operated a sailboat, though it was technically owned by his parents. On December 19, 1813, he married his first cousin, Sophia Johnson, and began to work entirely for himself. He ran a ferry between Manhattan and Staten Island, and began to trade in cargoes of fish, produce, and goods.

Early on, he established a reputation as a man who was tough yet honest and capable. Boatmen sometimes engaged in fistfights and dirty tricks to steal customers. Vanderbilt, who grew to be six feet tall, learned to use his fists effectively, and demonstrated skill and daring in handling a vessel.

Perhaps the greatest turning point in his life came on November 24, 1817, when he agreed to serve as ferry captain for Thomas Gibbons of New Jersey. Gibbons’s vessel (which ran between New Jersey and New York) was a steamboat, which gave Vanderbilt an education in this new technology. More important, Vanderbilt assisted Gibbons in a battle against a legal monopoly on steamboats in New York waters that had been granted to the patrician Livingston family. Gibbons’s lawsuit against the monopoly, Gibbons v. Ogden, was finally decided in his favor by the United States Supreme Court on March 2, 1824. Chief Justice John Marshall ruled that the monopoly had no force against interstate shipping; states, he declared, could not interfere with interstate commerce. The decision overturned lower court precedent to guarantee freedom of trade within the nation’s borders. It allowed Gibbons's ferry to operate unhindered, and cleared the way for Vanderbilt's own future in transportation.

Vanderbilt worked for Thomas Gibbons until the latter man’s death in 1826, and then for his son William Gibbons until 1829. During that time, Vanderbilt continued to operate his own enterprises on the side, displaying an aggressiveness that led Thomas Gibbons to write, “I am afraid of this man.” Vanderbilt designed and built ever larger and faster steamers, becoming one of the leading maritime architects of the paddlewheel era. After leaving Gibbons’s service, he inaugurated a series of lines radiating out of Manhattan—first to New Brunswick, New Jersey, then to Peekskill, Albany, and the ports on Long Island Sound. He competed against the dominant steamboat enterprises in each market, offering better speed and lower fares. At times he accepted pay-offs to end his competition; and he paid at least one rival, Daniel Drew, to do the same.

Starting in 1835, Vanderbilt concentrated on Long Island Sound, where his boats connected to the new railroads that served Boston and New England’s budding factory towns. He acquired a stake in a number of these railways, and took part in their management. In 1847, with the aid of Daniel Drew (now an ally), he took control of the Stonington railroad, and was elected corporate president.

At the same time, he quietly sought social respectability. Starting no later than 1840, he spent each summer in Saratoga Springs, New York—a resort town where the nation’s elite gathered. In 1846, he moved into an oversized brownstone townhouse in Manhattan, at 10 Washington Place , just off Washington Square , in the district favored by New York’s most prestigious families.

He and his wife Sophia had thirteen children in all, born between 1814 and 1839 (one died in 1836 when only a few years old). Vanderbilt sent his oldest son, William Henry (born in 1821), to work for Daniel Drew, but William suffered a nervous breakdown, and Vanderbilt dispatched him to a farm on Staten Island. His second son, Cornelius Jeremiah, suffered from epilepsy, and later developed a lifelong gambling addiction. Vanderbilt brought many of his sons-in-law into his businesses, employing Daniel B. Allen as a business manager, William K. Thorn as his attorney, and Horace F. Clark as a lawyer and advisor, to name a few.

New York’s patrician families did not embrace Vanderbilt, despite his aristocratic street address. In 1853, the Mercantile Agency, the nation’s first credit bureau, denounced him as “illiterate & boorish, [very] austere & offensive.” The uneducated former boatman was not actually illiterate, though he wrote phonetically. But he won respectability only very slowly.

Steamships

In December 1848, Vanderbilt’s life—and all of American history—was transformed by the news of gold in California. Many of the tens of thousands who rushed to San Francisco went by steamship. They paid as much as $600 each to be transported by the Pacific Mail and U.S. Mail Steamship companies, which operated on the Pacific and Atlantic, respectively, connecting through a land transit across Panama. These firms were heavily subsidized through a federal mail contract. Regardless, Vanderbilt decided to enter the market.

His initial plan was to construct a canal across Nicaragua, closer to the United States than Panama and largely traversed by natural waterways. After organizing a canal company and conducting surveys, he was unable to secure the necessary capital for the canal from British bankers. The Nicaraguan government, however, granted his company the exclusive right to transport passengers and freight from ocean to ocean. He went to Nicaragua three times in order to scout the canal and transit routes, negotiate with the government, and pilot steamboats up to Lake Nicaragua. He purchased a shipyard and engine works, and designed and constructed oceangoing sidewheel steamships of unprecedented size, speed, and fuel efficiency. He organized the Accessory Transit Company, a corporation chartered by Nicaragua to conduct transit operations within the country.

His line, inaugurated in July 1851, soon became an effective competitor with the established Panama route, carrying passengers between New York and San Francisco at lower fares. The route saved about a week compared to the journey via Panama, and several months off a voyage around Cape Horn. The success of the Nicaragua route lifted Vanderbilt to national prominence. He acquired the informal title of Commodore—then the highest rank of the U.S. Navy—an honorific that would be used by newspapers, politicians, and family members for the rest of his life. His iconic status was sealed in 1853 when he took his family on a highly publicized tour of Europe in the North Star, a private yacht the size of an ocean liner.

Unfortunately for Vanderbilt, the very success of his Accessory Transit Company led to a succession of conflicts with partners in the enterprise. In 1856, after a hiatus outside of the company, he resumed control, only to run up against William Walker. Walker was a “filibuster,” one of America’s antebellum soldiers of fortune who invaded foreign countries. In 1855, Walker succeeded in taking control of Nicaragua. He stripped Accessory Transit of its transit rights, transferring them to a friend, who resold them to Vanderbilt’s business rivals. Vanderbilt intervened in a war between Walker’s regime and Nicaragua’s neighbors, helping to drive Walker out of the country in 1857. The new Nicaraguan government refused to reopen the transit route, however, so he started a new line running by way of Panama. Ultimately he forced Pacific Mail to divide the market with him and establish a joint monopoly in 1860.

During this period, Vanderbilt also engaged in other enterprises. On May 21, 1855, he initiated a transatlantic steamship line, in opposition to a federally subsidized company led by Edward K. Collins. As usual, his line offered steeply lower fares, and Collins’s company eventually went bankrupt. After many prior ventures into ferries between Manhattan and Staten Island, he started the service that is the direct ancestor of the municipal Staten Island Ferry in operation today. During the Civil War, Vanderbilt donated his largest steamship to the Union navy (among other services to the federal government), for which Congress awarded him a gold medal.

Railroads

In 1863, Vanderbilt began to transfer his interests from shipping into railroads. Starting with the New York & Harlem Railroad, a line that penetrated the center of Manhattan, he took control of a series of railroads that connected New York to Chicago—moving sequentially into the Hudson River, New York Central, Lake Shore & Michigan Central, and Canada Southern. Through consolidation, leasing, and coordinated management, he created an interregional railroad system. This was a major transformation of the railroad network, which previously had been fragmented into numerous short railroads, each with its own procedures, timetables, and rolling stock. The creation of a coherent system spanning several states lowered costs, increased efficiency, and sped up travel and shipment times.

In 1870, Vanderbilt consolidated his two core companies into one of the first giant corporations in American history, the New York Central & Hudson Railroad. The new company had a par-value stock capitalization of about $100 million, roughly four times greater than that of the New York Central alone just a few years earlier. (The par value of each share was $100, a figure of great importance to nineteenth-century investors. In theory, the total par-value of a company's stock represented its investment in physical capital.)

Much of the operational management of Vanderbilt’s railroad empire fell to his oldest son, William Henry Vanderbilt, who had proven himself an able businessman during his years as a farmer and entrepreneur on Staten Island. Under his father’s direction, William slashed costs and increased efficiency, turning the New York Central & Hudson River into one of the most profitable large enterprises in America. Cornelius Vanderbilt ordered the construction of new infrastructure, including the original Grand Central Depot (then the largest railroad station in the United States), a massive freight depot at St. John’s Park in lower Manhattan, and an unprecedented four-track corridor between Albany and Buffalo. As a result of these measures, the New York Central & Hudson River was able to continue to issue regular dividends after the cataclysmic Panic of 1873, when other major railroads suspended payment and half of the nations’ railways went bankrupt.

Controversy

Despite the wealth Vanderbilt created, and the far-reaching benefits the nation reaped from his transportation enterprises, public controversy dogged his entire career. In 1859, for example, The New York Times created the metaphor (if not the actual phrase) of the robber baron to criticize Vanderbilt’s penchant for competition. In January 1867, he halted all rail traffic into Manhattan to settle a business dispute; since a winter storm prevented ferries from reaching the city, he essentially cut off New York from the rest of the country. Such acts aroused fierce debate over the new power of corporations, about the inherent conflicts between private and public interests created by very large enterprises. Vanderbilt saw no such conflicts. As he explained his philosophy to the New York State legislature, “It is not according to my mode of doing things, to bring a suit against a man that I have the power in my own hands to punish.”

Corruption was another issue that repeatedly appeared in Vanderbilt’s career. In 1863 and 1864, he cornered the market in Harlem railroad shares in order to punish shortselling public officials who wished to damage the stock price. In 1868, he waged an epic (and failed) attempt to corner Erie Railway stock, which resulted in the wholesale bribery of the New York State legislature by his rival, Jay Gould. Many assumed Vanderbilt was paying off public officials as well, though evidence is lacking.

Some charges of corruption reflected economic theories that have long since lost currency. Vanderbilt was one of the great financial engineers of his day. He carried out some of the first notable stock splits, which were rewarded with rising share value on the stock market. Conventional economic thinkers, on the other hand, denounced these splits as "stock watering"; in keeping with the theory of the day, they believed that the shares of stock should equal the amount of investment in physical capital, usually at $100 per share, the standard par value. If new shares did not represent a corresponding increase in real estate, buildings, rolling stock, and the like, then they were condemned as "fictitious capital." Though Vanderbilt defended his operations in conventional terms, he contributed to the abstraction of the financial sector, decoupling securities from a direct linkage to the physical world.

A third issue that gained prominence in Vanderbilt’s later life was corporate collusion to eliminate competition. Though Vanderbilt had celebrated competition as a steamboat entrepreneur, when he went into railroads he tried to construct cartels to set rates and manage conflicts across the industry. He was attacked by critics ranging from labor activists to the rural Grangers to such intellectuals as Henry Adams and his brother Charles, Mark Twain, and The Nation editor E. L. Godkin. These voices often disagreed with each other, but their arguments over Vanderbilt helped to shape a new debate over the wisdom of federal regulation of the economy, a debate that continues to this day.

Vanderbilt himself espoused laissez faire views he had held since at least the Jacksonian era. Though he likely never read The Wealth of Nations, he neatly summarized Adam Smith’s ideas in testimony before the New York State legislature in 1867. “I have always served the public to the best of my ability,” he said. “Why? Because, like every other man, it is to my interest to do so.”

Personally, Vanderbilt remained a contradiction for those who knew him. Unfailingly honest yet also ruthless, enormously productive yet also exacting, he was a man of great capacities and difficult manners. He was intolerant of weakness, measuring others by the high standard he set, and he was often brusque and dismissive. Yet he collected many friends, especially around the card table or on race courses, and he could be affectionate as well as hard on his family.

Misquoted and Misunderstood

As an enormously powerful but also taciturn man, Vanderbilt became one of the most misquoted individuals in the nineteenth century. These misquotes (and outright inventions) include comments about Jay Gould (“It never pays to kick a skunk”), the law (“Law? What do I care about the law? Ain’t I got the power?”), and his steamship rivals Charles Morgan and Cornelius Garrison (“Gentlemen: You have undertaken to cheat me. I won’t sue, for the law is too slow. I’ll ruin you.”). Contrary to legend, he had nothing to do with the invention of the potato chip.

After his wife (and cousin) Sophia died in 1868, he remarried one year later to another cousin, the curiously named Frank Armstrong of Alabama, who was more than four decades younger than Vanderbilt and an unrepentant Confederate. An interest in helping the defeated South marked many of Vanderbilt’s postwar charitable acts, including standing as a bondsman for the release of Jefferson Davis and the endowment of Vanderbilt University in Nashville, Tennessee, with a gift of nearly $1 million.

Though Vanderbilt is a name attached to great mansions—the Biltmore, the Breakers, and others—these were all constructed by later generations. The Commodore himself lived comparatively modestly in his brownstone off Washington Square. His primary indulgence was in fast horses, particularly for harness racing. He personally raced against all comers on the roads of upper Manhattan, well into old age.

Much of the notoriety that dogged his later years revolved around his involvement with the feminist sisters Victoria Woodhull and Tennessee Claflin. He appears to have gone to them for séances and magnetic healing (which were widely accepted as valid at the time), but they publicly exaggerated their connection to Vanderbilt, claiming that he supported their purported stock brokerage on Wall Street and their radical newspaper. No evidence has surfaced to support their claims, and both enterprises soon collapsed.

It has been claimed that Vanderbilt's connection to Woodhull and Claflin was a manifestation of syphilitic dementia, and that he went insane and died from the disease. No evidence has ever been produced to support this contention. Indeed, the claim is contradicted by all existing evidence. Syphilitic dementia, or "general paresis," is the result of the progressive destruction of the central nervous system by the syphilis bacteria. It results in wild behavioral aberrations, rapid loss of motor control, paralysis, and finally death within three or four years of the first manifestation of madness. Vanderbilt was a national celebrity, in the public eye on an almost daily basis until the last few months of his life, when he was bedridden with bladder and colon infections. Of these thousands of witnesses, none reported any symptoms consistent with general paresis. Impromptu newspaper interviews, private diaries and letters, and minutes of directors' meetings of his railroads all show him to have been in command of himself and his empire up until his death.

When Vanderbilt died in 1877, the value of his estate was estimated at $100 million. Multiplying that figure into a modern equivalent is problematic, due to the dramatic changes to the economy over time, and the inexact economic statistics available for the 19th century. One comparison, though, may give some idea of the scale of his wealth. If he could have sold his entire estate at full value to American buyers when he died, he would have taken roughly $1 out of every $20 in circulation, counting cash and demand deposits. By contrast, William "Bill" Gates III, considered the wealthiest man in the world before the financial panic of 2008, would have taken $1 out of every $138 at that time, had he been able to sell his entire $57 billion estate to American buyers at full market value. (The calculations for 2008 are based on the Federal Reserve's M2 figure for the stock of money in the economy.)

In Vanderbilt's will, he left about 95% of this fortune to his oldest son, William, dividing the rest among his wife and remaining children, who received between $200,000 and $500,000 each. Daughter Mary Vanderbilt La Bau sued to break the will, leading to a sensational trial. Despite salacious and often unreliable claims by La Bau’s attorney (including many that were not backed up by actual testimony), the trial ended with the confirmation of the will. The fortune secure, William and his children emerged as leaders of high society in the Gilded Age.

T.J. Stiles is the author of “The First Tycoon: The Epic Life of Cornelius Vanderbilt” (Alfred A. Knopf, 2009), winner of the Pulitzer Prize and National Book Award. He also wrote “Jesse James: Last Rebel of the Civil War,” winner of the Ambassador Book Award and the Peter Seaborg Award for Civil War Scholarship. He lives in San Francisco.

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